Bankruptcy Hits Reliance Communications

Image source: moneycontrol

In 2016, Reliance Jio shook the telecom market by
introducing affordable data plans to the consumer market, disrupting the
overly-competitive and highly priced market led by front-runners like Airtel
and Vodafone. Three years later, the major players in the telecoms industry are
still struggling to keep up.

On 1st February 2019, Reliance Communications, controlled by businessman Anil Ambani, declared bankruptcy after failing to repay owing banks a debt of $7 billion as of March 2017. Since then, the company has not made its debt level public. The telecommunications company had long struggled under heavy debt, and had reported a string of losses during a price war triggered by the market entry of Reliance Industries’ telecom venture, Jio Infocomm, owned by Mukesh Ambani – Asia’s richest person and Anil Ambani’s elder brother. This unforeseen price war forced Reliance Communications to shut down its wireless business, thereby reducing its operations.

Image source: NDTV.com

To clear dues and growing debts, the company has been
trying to sell all telecom infrastructure, assets and spectrum, monetize its subsea
cable arm GCX, IDC, and Indian Enterprise Business, develop 30 million square
feet at the Dhirubhai Ambani Knowledge City complex, and other real estate
assets.

However, after a period of over 18 months, lenders have not received any proceeds from the proposed asset monetization plans, and the overall debt resolution process is yet to make any headway. Reliance Communications even failed to sell spectrum to Mukesh Ambani’s Reliance Jio, a deal which was expected to bring some relief to the cash-strapped company. Reliance Communications was expecting to realize Rs 975 crore from sale of spectrum to Jio, which it promised to use for paying off dues worth Rs 550 crore to Ericsson, and Rs 230 crore to settle dues of minority stakeholder Reliance Infratel.

Reliance Jio, however, declined to take over any past
liability of Reliance Communication, for which the Department of Telecom may
raise demand in future.”The RCom Board, therefore, sees a fast-track
NCLT resolution in 2019, free of all uncertainties and challenges. The Board
remains confident in future prospects as a going concern under new ownership on
completion of the NCLT resolution process,” the statement said.

Reliance Communications on Sunday said it will propose
a congruent debt resolution plan to the National Company Law Tribunal that it
had been pursuing on the side. The Anil Ambani-led company announced last week
that it would file for bankruptcy proceedings as it failed to sell its assets, which
was necessary in order to repay lenders.

“RCom’s management will propose a similar Debt
Resolution Plan in the National Company Law Tribunal (NCLT) process, as was
earlier being pursued outside the NCLT. Key elements of the Debt Resolution
Plan remain unchanged,” the company said in a statement.